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Counterparty Risk under Basel III
Macek, Petr ; Teplý, Petr (advisor) ; Rippel, Milan (referee)
The aim of this thesis is to address the implications of Basel III regulation on counterparty credit risk. We analysed the development of OTC market, we addressed systemic risk and the way how central counterparties could mitigate or spread the contagion among banks. We used simulated data to develop a stress test model to find out the impact of counterparty credit risk on banks' capital requirements, in case the interest rate increased extensively. Six pos- sible scenarios of interest rate levels were developed with ascending order of the IR level. From these scenarios we computed the exposure levels and credit valuation adjustment (CVA) as the market value of counterparty credit risk. We came to the following conclusions: (1) Czech banks have enough capital to withstand any interest rate increase in any scenario. (2) Banks with high expo- sure to derivatives like Bank of America, Citibank and JP Morgan would face severe problems if the interest rate increased. (3) There is no direct correlation between credit valuation adjustment and interest rate, the CVA increases faster with the increase of the interest rate.
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Current trends in OTC derivatives markets
Šimko, Marek ; Dvořák, Petr (advisor) ; Witzany, Jiří (referee)
The uppermost goal of this diploma thesis is aimed at identification and evaluation of the current trends in one of the largest segments of financial markets. Special attention has been devoted to the regulatory changes, which have not been completely implemented in all major jurisdictions so far. The introductory part deals with the nowadays situation and explanation of post-crisis measures leading to a higher level of transparency and system stability. The following chapters analyze the key elements contributing to specific trends whereby those findings are based on research studies published by the world leading universities and central banks. The author also observes alternative functional concepts in the market and potential impacts affecting real transactions. The final portion has been dedicated to analysis of practical implications in terms of increased costs related to the trades and possible prospective outlook of the OTC derivatives market. The whole text is accompanied by authors personal reflections and comparison between the most important trading regions in respect to the value of underlying assets.
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The impact of counterparty risk on derivative valuations and the behavior of banks
Šedivý, Jan ; Brada, Jaroslav (advisor) ; Daňhel, Jaroslav (referee) ; Míšek, Radoslav (referee)
In the thesis we analyse changes in derivatives valuation after the financial crisis and their impact on behaviour of financial institutions. We focus mainly on the changes related to counterparty credit risk and valuation adjustments. We describe in economical terms the relationship between counterparty credit risk and traditional credit risk, we also introduce management and modelling of this risk. In second part of the study we analyse the regulatory framework, in particular new capital requirement and mandatory central clearing of OTC derivatives. We discuss inconsistencies between regulatory and internal approaches to the counterparty risk measurement and also significant systemic risk connected to central counterparties. Finally we investigate the impact of changes in derivatives valuation on banks in both the EU and the Czech Republic. Specifically we are interested in optimal approach to entering into derivative trade.
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